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Employees or Business Owners: Who Really Makes More Money?

By Ian Klaes

People who are considering starting a business often ask: "Who makes more money: employees or business owners?" The answer to this question is not as straightforward as it may seem.

Generally, business owners have the potential to make more money than employees because they are not limited to a set salary. However, the amount of money a business owner makes depends on the success of their business. Additionally, there are other factors to consider, like the industry, size of the business, and level of experience of the employee.

Let's take a deeper dive and determine who really makes more money: employees or business owners?

Employee Earning Potential

As an employee, you agree to perform certain tasks for a specific rate of paid compensation. You get paid on a regular basis — weekly, bi-weekly, or monthly. And your paychecks usually have taxes, benefits, and other deductions already taken out. Employees may receive additional benefits, like raises, a company car, club membership, paid time off, or healthcare packages.

An employee's salary does not change due to the company's performance. Employees can be assured consistent payments for their work. They don't have to worry about the financial health of the company. As long as they are performing their job duties, employees will have stable income and benefits.

But employees aren't guaranteed anything if the company does really well financially. Their earning potential is capped at a certain point. And they don't have a say about how much they are paid or when they receive raises. They may be limited to the position they were hired for, with limited opportunities for promotion and career development.

Business Owner Earning Potential

Business owners, on the other hand, may not have a consistent income. A new business's earnings can be unpredictable. But also, deciding what to pay yourself is one of the most controversial issues for small business owners.

There is no one-size-fits-all solution to determining your business owner salary. It depends on your type of business, ownership structure, operating costs, and other factors. However, every business owner should pay themselves something.

In the beginning of your business, you might be the only employee and be able to take a large salary. But as you grow, you will need to hire other individuals and cover the costs of their salaries. That could lead to you taking a pay cut as others help you reduce your workload.

Ultimately, your salary is a balance. You want to take enough to be compensated for your work and business ideas but not too much that it would hurt the company. But the salary can change depending on the performance of your business. By becoming a business owner, you have control over how much you pay yourself.

There's also no limit to how much you can make! You can increase your income by growing your business, finding a new customer base, or expanding into new markets. You can decide to offer new products or services and raise your rates. Additionally, you can take advantage of tax benefits, such as deductions for business expenses and investments.

So, Who Makes More Money?

In the short-term, the employee will always make more money. That's because business owners walk away from a comfortable salary and invest a sizable amount of capital into a business. Meanwhile, the employee is making a steady income.

However, in the long-term, the business owner has the ability to make significantly more money than the employee. And the business owner has access to different benefits — not just money.

That's not to say that every business owner will be successful because, frankly, businesses will fail. Additionally, employees in highly specialized fields can make a lot of money. Think lawyers and specialized doctors. However, business owners, if successful, can make more than they would have as an employee.

When considering who makes more money, it's important to look at the timeline. The financial rewards of being a business owner may not come in the form of a high salary. And they may not be immediate. But over time, business owners can be extremely successful and build an asset to sustain them years to come.

So, the answer isn't so clear. Both being an employee and being a business owner come with their own share of benefits and drawbacks. But if you are willing to take on a certain amount of risk to shatter your glass ceiling, business ownership could be right for you.

Our franchise development team would be happy to discuss some of the possibilities of opening a home care franchise with you. We know what it takes to be successful and help you mitigate your risk while maximizing success. Reach out to us today!

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Tags: Finances, Franchise Ownership